Typically an appraisal below purchase price is not considered a contingency. Typical contingencies are home inspections, buyer qualified for financing, material disclosures such as somebody dying on the property recently, etc. I guess you could put low appraisal contingency in the offer but that would probably reduce your bargaining position if other buyers are bidding on the property. I guess the buyer could get out of the deal if the low appraisal means the buyer can't qualify due to lack of down payment + equity.

Appraisals generally serve the lender. Appraisers who consistently overvalue properties don't last very long because lenders won't use them. Appraisers are also guided by best practice which brackets their subjectivity. Agents have no skin in the game so they don't have a lot of weight in the appraiser process.

Where the hell can you buy a house for $160k?

That's only slightly higher than my yearly rent

In my case it is a contingency. It seems agents would have skin in the game though. If the appraisal comes in lower the deal is less likely to go through making them lose commission on a possible sale.


In the good ol' mitten, houses can go for that, at least in my area. $120-$150 is ghettoish, $160k-$190k is lower-mid income range, $200k-$390k is middle class, 400K and up is wealthy. It seems as though in urban areas prices tend to be higher. In rural areas prices seem to be cheap.

I remember going to a website that showed median house prices per state. California was like $500k or something. I'm thinking "how do people even live there? That's awful".

I suppose a smart thing to do is go live in an area that has a high cost of living that also pays higher wages, build up a nest egg, and then retire in a smaller town where the cost of living is very small. In another thread people were talking about making $250k being normal for an average coder. That seems absolutely crazy to me.

Appraisal contingencies have certainly been a part of every purchase contract I've seen (sample size - ~20).


Fun fact - In the state I used to live in for my last sale, the law was recently changed so the seller has to disclose nothing about the house. Every sale is essentially "as is".

Commission != "skin in the game". Those with skin in the game are the principals, and lenders. Of course agents want to get the deal but that is work, not an investment.

I deal primarily in cash or high % cash deals so appraisal contingencies do not get put in much if at all.

It sounds like the law is just following practice, since they rarely disclose anything anyway and it even more rarely comes back to bite them.

There was actually a form I had to sign that essentially said "I'm just some dude that owns a house, what the hell do I know". Buyer had to acknowledge receiving the form and everything was on her.

When working for the seller they want to deflate what you think it's worth.

When working for they buyer it's the opposite.

Depends on the bank. Incentives are definitely broken in certain spots and it's a lot easier to see the benefit of having deals go through than it is to recognize the costs of the extreme tail end scenario where local housing markets crash and there isn't enough equity to cover costs. The difference between an optimistic appraisal and a realistic appraisal from the banks perspective very rarely matters but if you're looking to make an informed decision about how much to spend on a house that 1 or 2% will be realized no matter what.

I think if you were to get a complete look at time adjusted appraisals vs actual sale prices they would systematically show a slightly inflated number.

In parts of the midwest you can buy really nice houses for half of that.

to reiterate another post (speaking from experience) never negotiate real estate deal points on the phone if you can avoid it, and if you cannot then always always always have your realtor immediately follow-up with the deal points confirmed via email to everyone so there is memorialization of the effort. amazing what can be conveniently forgotten on what was approved during a call.

How did you get approved for a $165k mortgage when you make $34k? Even if you put 20% down, it's 4x your income. You are going to be eating PB&J to make your mortgage payments. You won't itemize your taxes unless you have something other than mortgage interest and property taxes, so the main benefit of home ownerhship is gone. The only prudent advice here is that you can't afford this house.

debt: $132,000 ($165k * 80%) at 4.62% (current interest rate) 30y fixed = $678 monthly
income: $34,000 / 12 = $2,833.33 monthly. Mortgages are based on gross (paid on net).

Considering he's in an area where 2 bed 1 bath 864 square foot house is $165k, then he's right on the line for maximum approval.

Throw in taxes of $300 monthly and insurance of $100.

He does have a point, setting yourself up for years of misery buying this house. Average monthly cost is over 1k... plus repairs, good luck with 30k a year. You MUST get roommates if you buy this, for your own sanity.

I keep saying it and I'll say it again, get tenants to pay your mortgage(s), it's truly life changing, every month I get richer and richer, sure I need to deal with occasionnal problems but it's worth it.

I'm not discounting getting a tenant, it would probably pay for most of the mortgage.

Just saying 38% DTI and 20% down is well within the range of any bank.

This. OP, you said you think the buyer's are probably desperate but you sound like the desperate one. All indications are that you shouldn't be. Like why are you so set on this house? It sounds like you are young and flexible, in which case you should be pretty open to buying just about anything...at the right price. The way my brother would do it is he'd go look at 100 homes, put lowball offers on 10 just to purchase 1 house.

When one gets into that house buying frame of mind, it's very difficult to change course. I know when I start looking at houses I get super excited and just want to make a purchase but you have to stay disciplined and remember you aren't the desperate one and you don't need to buy a house whatsoever.

If I had an income that low getting roommates would be a no brainer. I rented to roommates for years and doing so was the single best financial decision I've ever made. It essentially allowed me to live for free. They covered my mortgage, property taxes, insurance, bills, and I received profit on top of that. It allowed me to become more financially flexible. I was able to go long periods of time without a job if necessary, and could buy more homes because the one I was living in was rented out.

Just to give you an idea, I purchased a three year old 4 bedroom 3 bath 3300 sf home on a large lot in a historically depressed area near downtown for $145k. The neighborhood seemed ok (all new homes) but it was pretty rough near by. Schools were terrible. Grocery store was rough. Thing is, I was a young single guy so these things were not big deals to me. The place was 10 minutes from my work and within 15 minutes of 3 of the largest employment districts in this meto area.

The house itself was fine though being just 3 years old. It had minor cosmetic issues like ****ty carpet downstairs (to me that just meant we could spill beer on it and no big deal), no appliances, and a broken door on the shed.

Anyways, immediately upon purchase I had roommates living in it (all college graduate professionals) paying $500 to $600 each (all bills paid). This more than covered my costs. I later added a bathroom to the house (making it a 4 bedroom, 4 bath) and upgraded the floors etc (another thing having roommates allows you to spend money on) after which rooms in my house rented for $700+ each. Getting $2200/mo for essentially doing nothing is quite nice.


I think you need to decide whether you want roommates, how much money you can get from roommates and which house will bet fit your needs if you have roommates. The current house you are looking at is terrible for roommates. You have 864 sf that you have to share with another person? It's only a 2 bedroom so you can only get 1 roommate, and a shared bath which means the rent will be much lower. If you are serious about roommates then you want as much square feet, bedrooms, and bathrooms as you can get for the price you can for a loan you can qualify for.

Wait, what? You already have a contract signed right? You don't go back and ask for closing costs. You ask for that up front. You ask for everything up front and negotiate from a position of power.


My state has an addendum specifically for appraisals but I'm pretty sure it's covered by the 3rd party financing addendum too. I've had one appraisal come in below contracted price. All that means is that I made a very poor choice and offered way too much. I realized my mistake and immediately backed out of the deal. Not sure what the sellers are going to due anyways..you can't get a loan for the house due to the appraisal, so they're going to force you to buy a house you can't afford? Good luck with that!

It might sound awful to you but I wouldn't be surprised if home prices near you are more overinflated right now than prices in California. The vast majority of real estate in California has either just passed their 2006 highs within the past 2 years or still have yet to hit those highs. In my metro area, home prices are up 75% from their pre-crisis highs.

Update?

By reading your post it sounds like your emotionally invested in the property. Considering this, overpaying 3k is not the worst thing.

If you really want it, just buy it. If you are not sure yet, think about the following:
- Your market is declining
- The house has been for sale for a while
- Similar houses are for sale in the area.
So there is really no rush to jump in. It's good to visit many houses. Then once you visit the right house you'll know very quickly that it tick's all the boxes.

Real estate brokers are useless. I ditched mine after a week and did it myself. In the past they had the power of information and network but all info is available online now (at least in my market).

Update:

The house did appraise for $165,000. I ended up purchasing the house and I am highly satisfied with my decision. Looking at a lot of the other houses in the area I really like mine a lot more. The house didn't have any big problems either. There was a leaky faucet. I repaired it myself and this is quite an accomplishment for me because I'm not much of a handy man. Everything that I need is close by.

The street nearby isn't nearly as busy as my mom made it sound like. Getting in and out of the driveway is quite easy. At night there aren't even any cars out. The fire station nearby ended up being a plus because insurance is lower. Groceries, hardware store, and family are all really close by.

I've been getting a lot of overtime lately and finances are not a problem. Groceries were not as expensive as I put on my Excel spreadsheet. My bi-yearly car insurance dropped $120ish. A lot of things seem to just be falling into place. Utilities aren't that bad either. I make it 58 degrees when I'm not home (don't want my pipes to freeze by going too low) and 70 degrees when I am home.

Hooking up the washer and dryer was not as hard as I thought. The dryer tube thing was actually a bit of a pain in the ass, but it all worked out in the end.

I've also applied to a bunch of credit cards lately. Interestingly enough, you can save a lot of money by using credit cards. 1%, 2%, and higher cash back deals are actually pretty nice. I've noticed that a lot of cards offer a 0% APR for x number of months. I was thinking, why not max out the cards and pay the minimum each month? Instead of making the full payment, place it in a CD at a bank for a time until the 0% APR expires and pay it off in full then. Not only would I get cash back on purchases, I'd be making wealth with borrowed money at 0% interest.

A financial person from my work whom I spoke with recently said this is a bad idea, because somewhere in the fine print it makes me get hidden fees somehow. I suppose I'll stay away from this for now, but may explore some loop holes in the future once I've settled in more. For now, cash back is amazing.

My next adventure is to increase my income by finding a higher paying job. After that I will get a roommate. Then I will finish off the basement and get another two roommates. If the roommate thing doesn't work out... oh well. Everything else is amazing and I am extra responsible now.

Congratulations. I would look into a membership with Amazon Prime and see if you can get an Amazon credit card. 5% off all Amazon purchases (including membership fee the next time u pay it with the card). The Prime membership alone is more than worth it imo.

Don't max out your card(s). It hurts your credit score. Don't quote me on this but I believe ~25% usage in a card is the rule of thumb.

Along the lines of the idea you had taking advantage of 0% APR, you could bonus whore banks. This might be a great way to supplement your income since you're not making a ton, provided you can separate out some capital to make it work.

This thread will teach you all you need to know about using credit cards to make and save money, and there are posters there who can guide you in the right direction.

Thanks guys. I also was checking out the home ownership thread yesterday that you mentioned earlier in the thread. Great stuff.

Got a bill last night from Semco Energy. They have a $3.50 fee when you pay with a credit card as opposed to auto direct deposit. Also they sent two bills one for a transfer fee of $5 and another for the actual usage bill which hasn't arrived yet. They also say it may take up to 30 days to link my bank account to their utilities (that is a really long time). Seems like they drag it out and send the bills separately to try and squeeze $3.50 twice out of me.

I'm going to talk on the phone with them tomorrow to see if I can get the transfer fee waived entirely because I didn't really "transfer" from another house since I'm a first time buyer. If I can't waive the fee, then maybe I'll be able to get the payment grouped together. If neither of those work I'll find out what happens if I choose not to pay the $5 for awhile. There is a 10 cent fee, but if my gas doesn't get shut off and it doesn't hurt my credit then it might make sense to take the hit and pay it next month.

This is not how contract negotiation works. If you make an offer and they deny it, it's not "the last best offer is still on the table."

An offer is made, it is either denied or accepted. A counteroffer is an implicit denial and new offer which is also denied or accepted. You don't get to go back to the first offer and say "I changed my mind I'll take that." That offer is considered dead when you counteroffer.

Congrats on home ownership. I was so proud when I bought my first house and I'm sure you feel the same.

Quick tip for the future. Don't ever use a realtor as it costs you leverage. Buy your next house through the listing agent who works for the seller. By doing this the listing agent gets the full commission and therefore has huge incentive to convince the homeowner to accept your lowball offer. Not selling to you could cost the realtor 2.5% of the commission if another buyer uses their own agent.

Cliffs: These people are the scum of the earth who serve themselves and not the homeowner.
Bonus tip: When you sell this house to buy a bigger one within 7 years (mark my words, you will) use a realtor and lower your commission to 4% if 5% is the standard and he will agree because you will give the impression that you will use him to purchase the house that you are moving to. But then you double cross him and not use him by going direct to the listing agent.

Seems like a reasonable approach to go at it without an agent. Wouldn't it make sense to negotiate with the selling agent to only take 3% commission and then tell the sellers that they are getting a 3% discount when accepting my lowball offer? Maybe give the agent 3.5% commission just so they have no incentive to talk the seller out of the deal since they'd be getting slightly less money otherwise. I'm thinking 3% would be fine though, because the sooner an agent closes on a deal the sooner they can move onto another one.

If I am selling wouldn't I be able to ditch the agent and do a for-sale-by-owner. I can pay a flat listing fee to the MLS, advertise the property myself.

Actually, if/when I sell my house I was planning on doing a lease option. Not sure if agent commission is a thing for those situations I guess I'll cross that bridge when I get there.